Leading IT Transformation – Workshop 14 (Contract Negotiation)
The Appleton Greene Corporate Training Program (CTP) for Leading IT Transformation is provided by Ms. Drabenstadt MBA BBA Certified Learning Provider (CLP). Program Specifications: Monthly cost USD$2,500.00; Monthly Workshops 6 hours; Monthly Support 4 hours; Program Duration 24 months; Program orders subject to ongoing availability.
If you would like to view the Client Information Hub (CIH) for this program, please Click Here
Learning Provider Profile
Ms. Drabenstadt is a Certified Learning Provider (CLP) at Appleton Greene and she has experience in Information Technology, Information Governance, Compliance and Audit. She has achieved an MBA, and BBA. She has industry experience within the following sectors: Technology; Insurance and Financial Services. She has had commercial experience within the following countries: United States of America, Canada, Australia, India, Trinidad, and Jamaica. Her program will initially be available in the following cities: Madison WI; Minneapolis MN; Chicago IL; Atlanta GA and Denver CO. Her personal achievements include: Developed Trusted IT-Business Relationship; Delivered Increased Business Value/Time; Decreased IT Costs; Re-tooled IT Staff; Increased IT Employee Morale. Her service skills incorporate: IT transformation leadership; process improvement; change management; program management and information governance.
MOST Analysis
Mission Statement
After vendor selection is done, a contract has to be signed to formalize the terms of the agreement. But before a contract is finalized, there is generally a process of contract negotiation where both parties discuss and smooth out all the details of the contract. It is important for parties involved in a contract to understand their rights as well as obligations. The expected services and the compensation against those services should be clearly defined. All stakeholders should be in agreement with the terms of the contract. Only when these and other conditions are satisfied, can a contract be considered successful. This is what contract negotiation ensures. Negotiation of the terms of a contract should take into account all of the above points as well as other basic aspects of the agreement. Some of these aspects would be the price, quality, services offered, delivery, terms of payment, support, and any other crucial issues. Apart from these core factors, there are some other points of negotiation as well which ensure that the contract will work smoothly on application. For instance, the contract needs to define the KPIs to be used for vendor performance monitoring and the reporting methods. It should define the communication methods, invoicing methods, and delivery practices, including any system integrations that may be required from the vendor. The contract should also lay out the terms for dispute resolution and clearly name the contacts on both sides for such purpose. Any training or skill transfer requirements must also be agreed upon before finalizing the contract. A final critical component is to anticipate a possible future amicable “divorce”. The contract should clearly specify ownership of data, intellectual capital developed, customer relationships, how data will be transferred to a new vendor, transitioning knowledge, etc., if either party terminates the contract.
Objectives
01. Prepare for Contract Negotiation: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
02. Set Negotiation Objectives: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
03. Negotiation Strategies: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
04. Request for Proposal (RFP): departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
05. Due Diligence Checklist: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
06. Check References: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
07. Exit Strategy: departmental SWOT analysis; strategy research & development. 1 Month
08. Mitigating Contract Risks: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
09. Contract Review & Next Steps: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
Strategies
01. Prepare for Contract Negotiation: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
02. Set Negotiation Objectives: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
03. Negotiation Strategies: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
04. Request for Proposal (RFP): Each individual department head to undertake departmental SWOT analysis; strategy research & development.
05. Due Diligence Checklist: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
06. Check References: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
07. Exit Strategy: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
08. Mitigating Contract Risks: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
09. Contract Review & Next Steps: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
Tasks
01. Create a task on your calendar, to be completed within the next month, to analyze Prepare for Contract Negotiation.
02. Create a task on your calendar, to be completed within the next month, to analyze Set Negotiation Objectives.
03. Create a task on your calendar, to be completed within the next month, to analyze Negotiation Strategies.
04. Create a task on your calendar, to be completed within the next month, to analyze Request for Proposal (RFP).
05. Create a task on your calendar, to be completed within the next month, to analyze Due Diligence Checklist.
06. Create a task on your calendar, to be completed within the next month, to analyze Check References.
07. Create a task on your calendar, to be completed within the next month, to analyze Exit Strategy.
08. Create a task on your calendar, to be completed within the next month, to analyze Mitigating Contract Risks.
09. Create a task on your calendar, to be completed within the next month, to analyze Contract Review & Next Steps.
Introduction
Running a successful business requires collaboration across many teams when negotiating contracts with vendors. However, many companies typically lack the skills necessary to bargain effectively with suppliers, which results in costs that could have been easily avoided. Because of this, every business owner needs to develop their negotiation skills.
There are a few things you should watch out for if you’re planning to connect up with vendors or have already established a supply chain network. These tips will enable you to manage your company more successfully and help you stay within your budget while buying goods and services.
The essentials of a fruitful vendor negotiation
These five essential strategies for creating a successful relationship with your vendors are likely well known to anyone with even a few years of procurement experience. There’s a good possibility that you already do at least some of these if you run a business. Let’s examine the ideal methods for negotiating vendor agreements.
Assess your position
Always consider whether the vendor meshes with your business and is consistent with your current objective. Mutual interest is the one factor that unites all partnerships. The likelihood of developing a lasting connection increases with the amount of shared interests you have. On the other hand, it is always preferable to leave if your ideals appear to be at odds.
The next step is to create a thoughtful list of the requirements you’re looking to fill. Consider carefully the obstacles the vendor will need to overcome, the services or costs you are willing to bargain for, and the issues you will not be willing to compromise on.
Here are some things to consider:
• The specifications you have for the goods you’re producing or buying
• Your financial situation
• The current sales targets of your organization
• Your objectives for the new collaboration
• Criteria for selecting a vendor
Negotiate with more than one vendor
Never enter vendor contract discussions without having a strong backup plan. This should be your guiding principle while negotiating supplier contracts. Additionally, you can always advocate for what’s best for you while exploring the options with more than one provider because you won’t have to worry about damaging a connection.
converse with several suppliers at once. Inquire about their costs, the method they use to transport their products, and other facets of their operation. Gather a lot of information to aid in weighing the competing offers from each provider. Comparing various bids ensures that you are not entering a negotiation without any market expertise.
Risks and liabilities
Risks and liabilities are another issue to watch out for during vendor contract discussions. You are most exposed if you are a business owner. You must therefore avoid taking a chance by clinging to any loose ends that can wind up costing you later.
To emphasize the obvious once more, there will always be dangers in business. Things that happen in business that you didn’t expect to happen frequently include vendors who falsify their financials, unexpected recessions, and global pandemics.
It’s usually advisable to establish boundaries for risks and responsibilities that are clearly specified in order to avoid being caught off guard. Recognize when you should renegotiate a contract or when you can afford to cut your losses and part ways with a vendor.
Mutually beneficial relationships
A lot of business owners are mistaken about this. Negotiating with a vendor effectively doesn’t include nickel and diming your source. Instead, it’s about creating a strong bond where you both support and uplift one another.
Think about the terms and conditions from the standpoint of your vendor. Where you can, take some liberties. Offer non-monetary clauses in the contract, such as scheduling flexibility, that can make the vendor’s life simpler.
Since your vendor is an authority in their field with a wealth of knowledge you can use, the objective is to establish a solid collaboration with them. And business partners who like you might go above and above to assist you when you need it.
Communication process
When considering how to bargain with suppliers, start by improving your communication. Any successful trade depends heavily on communication, and poor communication can lead to losses. Always strive to keep lines of communication open. When discussing the contract, be succinct, precise, and on time.
When working on challenging challenges, personal communication is more productive than virtual contact, and this is also true when hiring vendors. Instead of dealing with juniors or associates, try to deal directly with department heads and executives.
Additionally, confirm that the party you’re negotiating with has the power necessary to decide. You shouldn’t waste time talking to someone who needs to go through their organization’s hierarchy in order to answer your question with a solid yes or no.
How redlining and negotiating are made simple by digital contracts
In the past, parties involved sat down at a table and worked on a contract for days. When email first appeared, businesses moved there to conduct contract negotiations.
But business has changed much since then, with the exception of contract drafting. So many individuals waste hours each day writing documents in Microsoft Word and exchanging emails. The method is labor-intensive and wasteful, costing the business time and resources.
However, digital contracting is now the only thing that matters, especially when it comes to digital services like contract negotiations with IT vendors.
Here are just a few of the things that digital contracting can help with:
• Real-time status tracking
• Retrieve comments on particular segments
• Specific time-stamped draft copies
• Directly notifying users of any changes, so that they can offer input.
Nobody else can automate a process like you can with the Ironclad. Sharing access to the main contract document with your coworkers and counterparties is the only necessary step. Any modifications made after that point will be fully transparent to everyone, and each clause will need to be approved by each accountable party. It is straightforward and easy to collaborate on contracts when everyone is informed.
How using digital contracts can help you keep good vendor connections
Consider it in this manner. A team is working on a contract that calls for the vendor to deliver goods worth $5 million per month. Both sides’ legal staff will exercise extreme caution to make sure everything looks fine.
Every concerned department, save Legal, must voice its opinion. Every aspect of the day-to-day operations, including Finance, Product Management, and Accounts, has a voice in the decision.
Imagine conducting the entire discussion by email, with each party delivering a unique soft copy that has undergone a variety of modifications. Nobody is collaborating on the same document if there is a day’s wait. The logistics are a mess.
Fortunately, a platform has been developed where a contract management system can handle each of these in one location in real time. Teams from both companies can collaborate and work concurrently on the same document.
Source: Dock365
Anyone can ask for another user’s input and directly tag them, and all of these actions will be fully traceable. All teams concerned may see and understand the redlining in its entirety. This is the reason contract management software has taken the role of emails.
Digital contracting streamlines and greatly improves the vendor negotiation process, or any time you’re negotiating contracts with suppliers, as opposed to the past, when creating a contract could take weeks or even months. You don’t need to spend all day looking through paper trails and write three emails to make a few changes.
This maintains a good rapport between you and your vendor. The redlining procedure becomes less stressful, the negotiation as a whole becomes less hostile, and mutually advantageous terms are reached.
When entering into a vendor contract, take into account these 5 factors
Contract termination clauses are a topic I get asked about a lot. Unfortunately, depending on how much consideration was given to the termination wording when the contract was being created, your alternatives may be restricted if you decide you “want out” while in the middle of an existing arrangement. Let’s examine the kind of factors you should take into account before signing a contract.
The 5 Vendor Contract Items to Consider
If you’ve been following our information for the past year or two, you are aware of my frequent assertion that entering into a new contract while hoping to get out is difficult.
However, I frequently compare it to the safety briefing you receive on a flight because, although the likelihood that you will need to employ the safety measures is quite remote, it is still crucial to be aware of them. You must be able to leave right away if necessary.
When thinking about a contract, the same holds true
1. Make sure that both your institution and the third party have a solid understanding of what each other’s responsibilities are from a contractual standpoint. Include termination steps and what happens to your confidential information after the contract ends. Don’t just accept the off-the-shelf, or “we have everyone sign this” contract.
2. Define carefully what the notification period will be if you choose not to renew the contract.
3. Define what steps may be in order if you need to quickly exit the contract. A couple of common example situations are in the case of some sort of contractual breach by the third party, such as a failure to live up to the standards in the contract, or an imminent financial failure of the third party.
4. A well-written and negotiated contract is a “win/win” for both parties with mutual responsibilities and protections. Neither party should feel trapped by the contract. At the same time, if things go poorly or if you simply don’t want to renew, you should have clearly articulated the steps that need to be taken, in what order they should occur, the appropriate time frames established and the costs associated (if any) with terminating the agreement.
5. Get a contract expert (e.g., attorney, paralegal, expert contract administrator, whomever you can call upon) to review all elements of the contract to make sure that it is accurate and enforceable.
By carefully drafting agreements that protect you and your vendor from both a legal and business perspective, contract management done right may be a significant benefit to your organization.
Audit Rights and Their Importance in Vendor Contracts
The greatest approach to make sure that vendors comply is with well-written contracts. Transparency is essential throughout the whole relationship when a vendor is crucial to your business. Your vendors must provide data and report to your company upon request if your contract includes a right to audit clause.
This information may be sought at any stage of the lifecycle of third-party risk management, although it is typically needed for vendor due diligence and continuing monitoring. A right to audit clause gives your company the right to see the output and reporting from your vendor, including self-evaluations, outside audits, and other official papers outlining the effectiveness of internal systems and controls.
Commonly Reviewed Vendor Data and Reporting
Let’s review what types of data and reporting are commonly reviewed under a right to audit clause:
1. SOC Reports. Otherwise known as Service and Operating Controls, these reports give an expert evaluation of the control environment and any weaknesses discovered through independent third-party audits.
There are three types of SOC reporting:
– SOC 1: Examines the effectiveness of internal financial controls at a service organization. As mandated by SSAE 18, SOC 1 audits a third-party vendor’s accounting and financial controls.
– SOC 2: This evaluates a vendor’s internal controls on one or more of the Trust Services Criteria (Security, Availability, Processing Integrity, Confidentiality, and Privacy). Type I confirms that controls are in place and Type II confirms that the controls are in place and working.
– SOC 3: A SOC 3 report is a public option that can be freely distributed but is less detailed than a SOC 1 or SOC 2 which can only be read by the direct users of an organization’s services.
2. SLA Reports. Service level agreements (SLAs) are the agreed-upon upper and lower bounds of service or quality in a contract. When certain SLAs aren’t met, the vendor usually faces some type of penalty. The vendor must deliver reporting that supports the appropriate level of performance in order to verify that SLAs are being met.
3. Compliance Reporting. This may include overall compliance policies, such as a compliance training policy, fair lending or Equal Credit Opportunity Act (ECOA) policy or Telephone Consumer Protection Act (TCPA) policy, which only applies to vendors making phone calls or sending texts. Also, consider a marketing/CAN-SPAM policy, which only applies to vendors involved in marketing activities and the Fair Debt Collections Practices Act (FDCPA), which only applies to collections vendors.
4. Data Privacy and Confidentiality Policy. This may need to be requested separately if not provided with compliance or information security documentation.
5. Payment Card Industry (PCI) Compliance Reports. PCI compliance reporting can include data such as vulnerability scans or other methods used to validate compliance.
6. Financial Statements. Audited financials, internally prepared financials and the organization’s annual tax filing can be important components in a right to audit clause.
7. Insurance. Current insurance certificates and policy references should be thoroughly reviewed and may include general liability, professional errors and omissions or cybersecurity coverage types.
8. Business Continuity and Disaster Recovery Reports. All plans, testing scenarios, test results and mitigation plans are essential to review to ensure that your critical vendors are prepared for a business impacting event. Plans should include the following:
• Departments included in the program and their RTO
• Business continuity exercise types, scenarios and findings
• Report of the last activation outside of a drill with root cause analysis
• Emergency management documentation that basic OSHA requirements are met (annual fire drill, etc.)
• Facility (location) risk/hazard assessment
• Evacuation & shelter in place procedures
• Active threat plan
9. Information security. Attestations/certifications for controls around security, processing integrity, confidentiality and privacy of a system, including but not limited to:
• SSAE 18 SOC reporting (type II reports should be included in the ’03 – independent third-party audits’ document request)
• ISO/IEC27001 certification
• PCI ROC and/or penetration test reports
• Technical and procedural measures for network protection through a firewall
• Secure server configuration
• Vulnerability identification and patching reports
• Physical and logical access controls
• Data security policy (See elements of documentation below):
– Data classification and encryption methodologies, data loss prevention, password hashing, data retention and destruction
• Documented incident response policy, standards and processes (See elements of documentation below):
– Data security and confidentiality protections against threats or hazards
• Data privacy and confidentiality policy
• Facility (location) risk/hazard assessment
• Disaster recovery exercise scope and schedule
• Report of the last activation outside of a drill with root cause analysis
10. Fourth parties. Your fourth party’s third-party risk management policy, risk rating methodologies, vendor inventory, critical vendor list, due diligence documents, ongoing monitoring schedule and critical contracts should all be reviewed.
11. On-Site Audit. To make sure a vendor is following its stated policies and practices regarding the client’s customers, an on-site audit is often conducted on a vendor providing vital services to the client. These audits typically look at the vendor’s internal controls, information systems, and security, business resumption, and adherence to internal policies and procedures, as well as financial and operational activity. Although the majority of this audit is done on site, it can also be done remotely.
12. Billing Audit. Many clients will want the right to audit the vendor’s billing statements – especially when the vendor is providing transaction services. The contract could include some language to assess penalties if any billing errors, specifically overcharging, are discovered.
13. Subcontractor Audit. For any or all of the audit rights that is included in the contract for the vendor, a client could also require the same audit of any subcontractor performing activities on the vendor’s behalf in support of the client.
14. Other Miscellaneous Audits. An audit clause might also require the vendor to perform regular testing or monitoring of other significant security controls such as application and network penetration testing, non-intrusive network audits or more intrusive network and physical audits, and to audit for compliance with applicable laws and regulations.
Critical vendors play an important role within your organization, so make sure to include a right to audit clause within your contracts so you can continually monitor your vendors’ and their subcontractors’ performance and identify any issues that need to be addressed.
Why Honesty Is the Best Policy
Although it’s very essential for the wellbeing of both firms, buyers and sellers aren’t always the most straightforward relationships to handle. While suppliers want to be compensated fairly for their services, buyers may depend on fast service delivery. Negotiating an exchange of the two ought to be simple enough, but this isn’t always the case.
Dishonesty on the side of one or both parties can damage business ties and sour the prospects for new business. Here’s why being truthful with suppliers and customers is always the best course of action:
Honesty Leads to Longer-Term Relationships:
A new business connection always carries some risk for both parties. Vendors want to know that they will receive payment as soon as the work is finished, and buyers want to trust their project to a supplier that will deliver a quality service and meet deadlines. Therefore, it should go without saying that long-term relationships are advantageous on all fronts, and the durability of such an union is greatly influenced by honesty.
Buyers should be forthright about the pricing they anticipate to pay from the start, and vendors should be entirely transparent with their clients about feasible lead times. This creates the foundation for a fruitful long-term partnership that meets everyone’s business needs by making both sides aware of one another’s expectations.
How do you negotiate with a SaaS provider for a cheaper price without upsetting them during the purchase?
One strategy for businesses to lower costs, boost cash flow, and expand margins is through negotiation. Suppliers usually seek to expand their margins, while buyers always want to lower expenses while preserving the quality of the services provided.
Your best alternatives as a buyer will be to achieve a balance or agree on a discount without upsetting the sellers given the conflicting objectives. But how can you bargain given that you have a limited budget without upsetting your sellers? Here, we fill you in on every detail.
What conditions should you consider while negotiating a lower price?
The first step in making sure your company receives high-quality service is to negotiate a SaaS contract. Cost-effectiveness, a shortened setup period, an easy-to-use user interface, and increased performance are all advantages of a SaaS contract.
However, you should have a clear objective and adhere to a standard operating method when negotiating a contract (SOP). Set a personalized pricing plan in place, ideally for the long run. Be mindful of any potential hidden expenses.
With regard to service features, begin with a simple plan. You have the option to make changes afterwards. Additionally, find out if the vendor gives you the choice to lower your spending in the event of a recession. Make sure your data security is adequate overall and that you have access to regular backups of your data.
Include a termination provision in the agreement. Imagine that after utilizing the provider’s service for a while, you don’t like it. Can you then choose to cancel the agreement? You’ll need this freedom to be able to switch to another SaaS provider that will provide you with high-quality services. Even in some contracts, there may be a fine if the desired services are not rendered.
How can you make your purchase without offending the vendor or SaaS provider?
You must protect the interests of your own company while keeping in mind those of other businesses. The interests of the two parties frequently diverge: the buyer wants to spend less, while the seller wants to make more money. Only mutual respect and appreciation of each party’s limitations can be the foundation of an effective and long-lasting cooperation.
Know how to talk to the vendor
Want to get the respect of a supplier? Here are some pointers. Recognize the terms. Understanding industry-specific lingo can be challenging at first, but once you do, the negotiation process becomes much easier because everyone is speaking the same language. Additionally, being respectful in your opposition will help you succeed. For instance, “I didn’t anticipate this sum to be this high. This question can go much further than “This pricing is absolutely outrageous. Is there any way to change the plan so I can stay within the budget. Reduce it, or I’ll find another store.
Don’t be arrogant or condescending
The negotiation may lead to a tense situation. Never lose your temper, and refrain from offending anyone. It’s important to demonstrate your expertise and bargaining prowess, but you also need to avoid patronizing the sellers or coming across as a snob. You are positioning yourself for success by keeping a composed, assured, and pleasant manner.
During the negotiation, establish clear terms
When laying out the details of your counteroffer to the supplier, it’s crucial to sound professional. This makes it possible for them to fully understand your stance without feeling threatened. Here are some more pointers. Try to convince them, for instance, that you need a discount in order to buy their good or service. It is frequently advantageous to clarify your words in an apology-style. This makes it easier for you to demonstrate interest in the product.
How can I make a fair offer to the SaaS provider?
Your SaaS provider may decide to cease working with you or reduce their investment if you place too many demands on them, which may eventually cost you. Making excessive pricing demands compared to the market does not result in a good bargain.
Identify the goals you have for the contract
The secret to a good negotiation is specificity. Never place yourself in a position where you want to look around and decide what you want right away before engaging in extensive negotiation. Before you enter into a negotiation, know exactly what you want in terms of the pricing structure, the features, and other specifics.
Having a clear idea of what you want can help you make wise choices during the bargaining process. Additionally, it exudes a sense of assurance and knowledge that can tempt the sellers to make a cheaper offer.
Find out the product’s retail price
Verify the cost of your desired item with various market vendors. Establish a reasonable target valuation range using this information. Aiming for a 10–30% cost reduction is reasonable. The likelihood of receiving a 70% discount varies based on the vendor.
You must also be aware of quality discrepancies because most vendors will argue that superior quality justifies paying more for a product or service. For the majority of vendors, maintaining current clients is less expensive than acquiring new ones. A provider may be more inclined to cut their prices if they fear losing your business. You can benefit from knowing how much new and existing consumers cost them when negotiating a deal.
Compare prices from different SaaS providers
A contractor’s best buddy is a price that is competitive. As a result, before entering into negotiations, always request at least one more estimate from vendors in the market.
Make a list of all the working conditions and additional services you require, for instance, when buying software. Give other SaaS providers this list so they can quote. then consider the cost. Using this method, you may determine what pricing is more reasonable and whether a dealer is offering you a lower or higher price.
An offer that is too “cheap” might occasionally be offensive to a seller. In fact, he might decide to avoid you in the future as a result. The size of your first offer must therefore strike a compromise between getting the best deal on the property and making a respectable offer that won’t anger the sellers.
In truth, when it comes to drafting business contracts, honesty and openness are ideal practices. Inform the vendor that bids from rival companies have been solicited; the best offer will win the job. If everything goes as planned, the vendor will lower the initial cost mentioned, provide better terms, or return with another type of incentive.
Before the deal, establish a price cap
Before you go to close the sale, try to set your price restriction after receiving at least one estimate from a SaaS provider as a customer. Setting a limit before the negotiation will enable you to be more exact. Your arguments will also be logically sound and supported by prior research.
As a buyer, your price cap is the most you’re willing to shell out for a product. Don’t go over it! Make your initial offer below €15k if you intend to purchase for that amount.
When might a negotiation strengthen or weaken a vendor-company relationship?
To avoid over-negotiating is the key. This can occur for a number of different reasons, including providing a list of “requirements” that fundamentally alter the nature of the contract, delaying the introduction of a new condition or other operating terms, as might be the case with software purchases, or simply responding too frequently with a low bid.
In fact, it can be a sign that you over-negotiated if the vendor just walks away from the contract or tells you that they believe another vendor would be a better “match.” In rare circumstances of last-minute discussions, the vendor can be forced to accept your offer if it was depending on your business to reach its sales targets.
There is always a “wound” that follows; if you created a new circumstance or intervened at the last minute, he might never forget the predicament you put him in. He might decide not to sign contracts with you in the future as a result.
Case Study: Why honesty and sincerity are a vital part of vendor contract negotiation
Actual Case:
The golden donut chain, a Philippine-based company, has faced difficulty in negotiating with its labor union. The donut chain and the labor union have talks regarding their problem.
When the donut chain’s management team arrived late with the said talks, the labor union stormed out in protest to show great dismay over their delay in the negotiation.
In order to continue their talks with the labor union, the management team of the donut chain has sent a letter that includes an apology.
However, from the perspective of the labor union, the apology is insufficient to forgive the inconvenience that the donut chain has caused. The labor union refused to meet for talks and continue with their strikes.
This case study has focused on how to convey your sincerity when apologizing in a negotiation. How can one deliver their sincerest apology that the other party will accept?
Final Deal:
The case with the golden donut chain and the labor union has ended in a bad way. Due to the lack of concession due to the insufficient apology from the donut chain, the labor Union has brought it into court.
When both parties brought it to the courts, it took years before a party was compensated. In this case, the labor union has won the case against the donut chain.
What can we learn from it?
Professor Edward Tomlinson and Professor Roy Lewicki from Carroll and Ohio University have found out that people view apologies to be sincere when it includes internal attributions of harm. This simply means that people will see your apologies as sincere when you own up to your mistakes.
The credibility of a person has a significant factor in making apologies sincere from the perspective of the other party.
A study showed that unfulfilled promises, deception, and breaking the trust of the other party are some factors that a negotiator cannot work out in giving their sincerest apology. Moreover, giving assurance even if you cannot attain or fulfill it is counterproductive in a negotiation.
Many negotiators advance their case by persuading the other party or listening to their side. But sometimes, the greatest thing you can do in a negotiation is to straightforwardly admit your mistake.
Many apologies have failed to achieve their aim—to be forgiven. The delivery of some people is usually the culprit why apologies are not accepted.
The importance of an apology in a heated argument or negotiation cannot be overstated enough. When the other party thinks that your apology is not sincere enough to make amends, the heat in the negotiation will rise further—leaving both disliking each other.
The power of apology in negotiation and dispute resolution is significant to fixing relations between parties. It is important to apologize and own up to your mistakes to make the other party feel that you are sincere.
We must remember that if we cannot fulfill or attain our promise, we must not push it further to the other party. Doing so will only aggravate the emotions of the other party. Because we all know that no one wants to be left hanging—so do not promise during a negotiation that you cannot follow through.
Executive Summary
Chapter 1: Prepare for Contract Negotiation
Prepare for the Negotiation with Research
Long before you sit down at the figurative bargaining table, the process of negotiating a contract starts. Establishing a thorough understanding of the other party’s viewpoint and business objectives is necessary to successfully persuade them. Complete background research about the firm, its products, and the specific person you will be negotiating with will help you get ready for the discussion. In order to evaluate the conditions they specified in these deals, how effectively they complied with these terms, and the caliber of commercial ties they build with other firms, you should examine their company website, news announcements, and any articles about their prior partnerships.
You can better understand the dynamics of a deal by doing thorough research prior to negotiation. This knowledge includes the other party’s interests, needs, and desired outcome as well as their strengths and weaknesses, any financial or time-based constraints that may affect the deal, and any competing interests. Additionally, it reveals vital details about who has the biggest leverage and, thus, who needs the agreement the most. With adequate planning, you may begin the contract negotiation from a knowledgeable, strategic position and confidently anticipate the opposing party’s moves. To avoid spending your time attempting to persuade the wrong person, be sure you are dealing with the actual decision-maker who has the power to make accommodations or agree to your demands.
A crucial aspect of work life is negotiating. Everyone has to engage in negotiation at some point, whether they are closing agreements for their company or for themselves.
Vendor negotiation: What Is It?
The strategic process of coming to an arrangement that is advantageous to both your organization and its third parties is called vendor negotiation. It might entail a number of discussions, mutual concessions, and the application of the soft skills we cover in this essay.
3 Essential points for Vendor Contract Negotiations
Three important things to keep in mind when negotiating a vendor contract if you lack knowledge or confidence are as follows:
• There’s a set of core principles and processes that can be learned and applied to negotiating, which will make you more successful at it
• There’s no single style or approach that you have to adopt to be a successful negotiator.
• Negotiation rarely takes place at a single, scheduled event. It’s a process that can begin from the moment you first engage with a potential counterparty. EVERY interaction is an opportunity to either negotiate or lay the groundwork.
You might be relieved to learn that being a skilled negotiator doesn’t require you to become overly pushy and confrontational. In fact, in 99% of situations, doing this will not result in a positive outcome.
The fundamental, overarching rule is that negotiations shouldn’t be combative. Parties to a negotiation should see one another as partners in pursuit of a mutually beneficial result.
Lets Review this sentence’s two essential components in the context of a contract negotiation:
• Collaboration is key. If you’re reached the negotiation stage with a potential vendor then it’s highly likely that both parties believe there is a deal to be done and benefit to be gained. Having a mindset of working together to achieve this will go a long way to making sure the negotiation is successful.
• Ensuring the contract is “mutually agreeable” is vital. There’s little point in forcing a potential vendor to accept significantly worse terms than they would usually work to. Over time, this can breed resentment and a lack of motivation, creating potential contract breaches.
Chapter 2: Set Negotiation Objectives
Good contract negotiations lead to good contracts, which necessitate a clear comprehension of and focus on, a company’s primary goals in drafting the contract. The achievement of the company’s most crucial objectives for the engagement throughout the negotiation determines if a contract is “excellent.”
Securing the company’s main goals must come first in any attempt to negotiate contract conditions. This course manual contains useful advice for anyone asking how to bargain a contract while keeping those goals in mind.
How to Establish Contract Objectives
We will start by going through the key topics that are typically covered during contract negotiations. Contracts can be categorized as involving a connection, such as an employment contract, or a transaction, such as a sale or purchase. Both kinds of contracts demand that the parties reach an understanding regarding the goods or services to be delivered, the payment, the date, and the place of performance, as well as a myriad of ancillary issues including confidentiality, dispute resolution, and occasionally non-compete clauses. While transactions are frequently one-and-done, relationship contracts frequently have clauses known as win-win provisions that urge the parties to keep cooperating. Many agreements contain both.
A corporation has a better chance of achieving its goals the more clearly it states what it really wants from a contract. The term “SMART” is sometimes used by legal professionals to refer to the accuracy needed while setting objectives. This abbreviation means “specific, measurable, achievable, relevant, and timely” (meaning within a particular timeframe).
A firm typically enters negotiations with a number of goals in mind. But in a certain transaction, not all of these will be given the same weight. Priorities will vary depending on the parties. Prior to starting contract discussions, it’s crucial for each party to consider the most crucial outcomes it wants to achieve from the deal. These should be given high priority as they are the company’s main goals. A handful of these goals are necessary for the deal to move forward. The party will leave if they can’t be agreed upon. These difficulties might be contrasted with other goals that, if agreed upon, would be preferable but which are not necessarily necessary for the specific trade.
Chapter 3: Negotiation Strategies
A crucial aspect of work life is negotiating. Everyone has to engage in negotiation at some point, whether they are closing agreements for their company or for themselves.
What Is Vendor Negotiation?
The strategic process of coming to an arrangement that is advantageous to both your organization and its third parties is called vendor negotiation. It might entail a number of discussions, mutual concessions, and the application of the soft skills we cover in this course manual.
Key Points About Negotiating Vendor Contracts
Three important things to keep in mind when negotiating a vendor contract if you lack knowledge or confidence are as follows:
• There’s a set of core principles and processes that can be learned and applied to negotiating, which will make you more successful at it
• There’s no single style or approach that you have to adopt to be a successful negotiator.
• Negotiation rarely takes place at a single, scheduled event. It’s a process that can begin from the moment you first engage with a potential counterparty. EVERY interaction is an opportunity to either negotiate or lay the groundwork.
You might be relieved to learn that being a skilled negotiator doesn’t require you to become overly pushy and confrontational. In fact, in 99% of situations, doing this will not result in a positive outcome.
We’ve chosen the example of negotiating a vendor contract to demonstrate the concepts in this course manual. However, these concepts are also applicable in other circumstances and will support your vendor negotiation tactics.
The fundamental, overarching rule is that negotiations shouldn’t be combative.
Parties to a negotiation should see one another as partners in pursuit of a mutually beneficial result.
Reviewing this sentence’s two essential components in the context of a contract negotiation:
• Collaboration is key. If you’re reached the negotiation stage with a potential vendor then it’s highly likely that both parties believe there is a deal to be done and benefit to be gained. Having a mindset of working together to achieve this will go a long way to making sure the negotiation is successful.
• Ensuring the contract is “mutually agreeable” is vital. There’s little point in forcing a potential vendor to accept significantly worse terms than they would usually work to. Over time, this can breed resentment and a lack of motivation, creating potential contract breaches.
Vendor Negotiation Strategies
When negotiating with vendors, you should pay particular attention to the following five points:
1. Know your position
2. Know what the other side wants
3. Communicate clearly
4. Build empathy
5. Get personal
6. Avoid Fatigue
We go into great detail about each of these vendor negotiation techniques in this course manual.
Chapter 4: Request for Proposal (RFP)
What Is a Request for Proposal (RFP)?
An RFP is a business document that outlines a project, requests proposals for its completion from competent contractors, and announces the project. RFPs are the preferred method of project initiation by the majority of organizations, including many governments.
When employing an RFP, the organization asking for bids is in charge of assessing the viability of the offers received, the financial standing of the companies submitting bids, and each bidder’s capacity to carry out the project.
Understanding a Request for Proposal (RFP)
RFPs are utilized for challenging projects that frequently call for a large number of subcontractors. They give information on the company issuing the RFP, the project’s scope, and the standards for judging submissions. They also describe the bidders’ process and the conditions of the contract.
The requests include a statement of work outlining the duties expected of the successful bidder and the deadline for completion.
RFPs often provide bidders with preparation instructions, including detailed instructions on the format and presentation of the bids. They often provide guidelines for what data the bidder must submit and the preferred format.
The proposal shouldn’t be overly specific or too ambiguous so that the contractor is left scratching their heads.
Governmental entities and other public sector businesses typically issue RFPs. Generally speaking, they are necessary to neutralize the process and increase competition among private businesses. The agencies want to make sure they receive the cheapest and most aggressive offer.
However, any corporate or public body is permitted to issue an RFP in order to receive numerous offers and a range of viewpoints on the project.
For instance, a company that wishes to go from a paper-based to a computer-based reporting process can submit a request for proposals for the hardware, software, and user training program needed to set up and integrate the new system within the company. A competitive bidding process might provide them with more information about the available options.
Requirements for a RFP
Requests for proposals may be issued by government agencies or other organizations in order to promote full and transparent competition and reduce the price of a solution. Accepting a proposal that is most in line with the requirements may not always equate to accepting the lowest offer.
The outcome of the solution depends on how well the call for proposals is put together. The bidder may not be able to create and implement an effective solution to the problem if the specifications are too ambiguous. The bidders’ ability to innovate may be constrained if the standards are overly specific and rigid.
Writing a request for proposals is the first step in the RFP procedure. The solicitation is read by bidders, who then offer suggestions for improvement. The last request for proposals is released after taking input into account. Then, the bidders submit their offers.